Islamic and Ethical Financing: Harnessing New Asset Class to Empower the Nigerian Economy

Islamic
and Ethical Finance in Nigeria holds great potential, especially in this era
where more stakeholders and investors are fully aware of the direct benefits.
The development of the Islamic and Ethical Finance Industry within the Capital
Markets is vital to economic empowerment as it provides funding for corporate
financing and other capital-intensive projects. This advancement can likely be
attributed to the growing preference for ethical products and services, as well
as the level of transparency and accountability amongst experts and key policy
makers in this industry.

The
Nigerian Government at both the Federal and State levels are playing key roles
in ensuring that this method of financing is embraced, with the launch of the
FGN Sukuk bonds three years in a row; and with key financial institutions also
harnessing this asset class as a new method of investing or obtaining financing
for large projects. The regulatory bodies in place have also provided a strong
supervisory framework which is critical to the growth of the sector. These
factors have encouraged visible progress in this new asset class, which is
crucial to the socio-economic growth of the country.

When
analyzing the success of such asset classes in Nigeria, it is important to note
that the Sukuk Bond issued in the Nigerian market has been widely accepted, a
case in point is Osun state - which was oversubscribed by about 11.4%. The FGN
Sukuk I and II have also seen between 5-30% oversubscription, which means that
the demand for ethical finance instruments is high. With consistency and the
right practices, the sector will witness a boost which will impact economic
growth. If properly harnessed, Islamic and Ethical Finance could be a key
source of corporate financing, and capital raising for large projects such as funding
for infrastructure development, development of the Capital Markets, and even
foster increased financial inclusion - as more individuals who had not been a
part of the capital markets investing community are slowly being introduced to,
and are adopting Islamic and ethical finance services.

According
to Oluseun Olatidoye, Head, Debt Capital Markets, FBNQuest Merchant Bank
Limited, who spoke at the recently held IFN (Islamic Finance News) Nigeria
Forum; a growth in the adoption of Islamic and Ethical Financing is key to
profitability in the Nigerian economy as the capital generated by investors
from these products can be used to close deficits in the country. He stressed
that the opportunities within the Nigerian Islamic and Ethical Finance market
must be harnessed, as ethical assets are gaining momentum as an alternative
investment avenue both locally and internationally.

There
has been an uptake in financial assets recently, especially with the Sukuk,
both from Muslims and non-Muslims. Some financial institutions can attest to
the fact that these products have been oversubscribed and in some cases, there
has been a challenge by financial institutions to meet the demand. For Muslims,
Islamic and Ethical Finance is a more acceptable form of investment, as there
are no interest charges on their investments which complies directly with the
tenets of The Quran. Mr. Olatidoye encouraged value seeking Islamic and Ethical
investors to invest in the products offered, and for more financial services
institutions, to issue more of these products.

He
further highlighted that FBNQuest Merchant Bank remains committed to deepening
Islamic and Ethical Financing in Nigeria, having acted
as Joint Financial Advisers to the Debt Management Office (DMO) of
the Federal Government on its recent Sukuk Issuances, which was
dedicated to economic development across the six (6) geopolitical regions.
“With more opportunities to raise funding such as this, there will be capital
readily available to fund infrastructural deficits in Nigeria”. He enjoined the
Federal Government to continue in its support for Islamic and Ethical
Financing, with more avenues such as the IFN Forum where key stakeholders such
as regulators and market leaders can engage in discourse around prospects and
impediments to the development of new asset classes in the industry.

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